To understand why insurance companies exist and what they do, we first have to address the basic concept of insurance and why someone would want it. Insurance (of any kind) was established to safeguard people against hazards they can't endure, debts they can't pay, or losses they can't withstand, etc. Take a very basic example of a person at risk of losing $100 for some reason. If for some reason, the person can't afford to lose this amount (or doesn't want to), an insurance company, that can withstand that loss, will offer to pay that amount for him if an event causing it occurs. Say for some reason this risk exists only for a day, and there is a 1% chance of it occurring. A fair price for you to pay the insurance company would be $1 (1% of the total loss). However, for taking a risk they don't have to take, the insurance company will charge you a premium (basically a penalty for being such a risk-averse pansy). They might charge you $2, thus they make money by accepting $2 for the equivalent of $1 of risk. Having more money and the potential for more customers, they can wait out the good or bad luck that the individual didn't want to chance, and the insurance company can make money in the long run (much like a casino in a way).
Scene change: people buy health insurance thinking that they must be making a prudent move factoring in the ability of a large insurance company to negotiate the prices of medical expense that they can't themselves (first off, you can negotiate your medical expenses; people just don't try). They picture a high-powered negotiator from the company staring down a measly doctor threatening to pull all their business unless they get the best price for the wholesale patients they're offering!
Well kinda yes, and kinda no.
Once the premiums are paid, the insurance company wants to pay as little as possible.
Using the model we introduced though, if the company's profit is based on percentage, they'd much rather insure you for a higher amount because 1% of one million is much more than 1% of one thousand.
Take the above example: The cost of the person's calamity (or whatever) was $100. The insurance company insured him for an additional 1% over the 1% of long term risk for their 1% profit. Their profit (1% * 100)= $1
Now imagine the price of the calamity was $1000 instead. The percentages are the same, but now the company's profit is (1% * 1000)= $10
It isn't complicated math.
Now, of course insurance companies can only raise their rates so high otherwise people can't afford them. The model has to be somewhat sustainable otherwise they'll get no business at all no matter how much they make the medical procedure cost. Much like a Vegas casino that keeps its limits reasonable and its loss on slot machines 1% instead of 50%. They need to keep a sustaining customer base.
The other thing that can keep insurance companies reasonably priced (just like casinos) is COMPETITION. An insurance company that can offer lower rates than one that is seeking to drive up prices to make as much profit as possible will be undercut and driven out of business. A Vegas casino can't offer slot machines that guarantee 10% loss because one next-door will open guaranteeing only 9% loss.
Now, the health CARE (and I cant emphasize HEALTHCARE over HEALTH INSURANCE enough) is much more complicated than these simple examples. But hopefully these scenarios can help you realize that health insurance isn't always the answer, and the companies may not have your best interests at heart.